We elected on our initial U.S. federal income tax return to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, we must distribute at least 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any capital gains, to shareholders, and meet certain organizational and operational requirements, including asset holding requirements. As a REIT, we will generally not be subject to U.S. federal income tax on income that we distribute as dividends to our shareholders. If we fail to qualify as a REIT in any taxable year unless certain relief provisions apply, we will be subject to U.S. federal income tax, including any applicable alternative minimum tax for open taxable years through 2017, on our taxable income at regular corporate income tax rates, and we could not deduct dividends paid to our shareholders in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders. Unless we

were entitled to relief under certain Code provisions, we also would be disqualified from reelecting to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT.

Subject to the restrictions imposed by our 7.875% senior secured notes due 2025 (see Note 13), our ability to make cash distributions to our shareholders in amounts exceeding 90% of our good faith estimate, as of the date on which the first quarterly dividend for the relevant year is declared, of our REIT taxable income for such year, determined without regard to the dividends paid deduction and excluding any capital gains, until we reduce our net leverage ratio. As a result, we may be required to record a provision in our Consolidated Financial Statements for U.S. federal income taxes related to the activities of the REIT and its passthrough subsidiaries for any undistributed income. We are subject to the statutory requirements of the locations in which we conduct business, and state and local income taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of respective tax laws.

We have elected to treat the subsidiaries through which we operate Uniti Fiber and Talk America, as well as certain portions of Uniti Towers, as TRSs. TRSs enable us to engage in activities that result in income that does not constitute qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income taxes.

Income tax expense (benefit) for the years ended December 31, 2020, 2019 and 2018 as reported in the accompanying Consolidated Statements of Income was comprised of the following:

	Year Ended December 31,
(Thousands)	2020			2019			2018
Current
Federal	$	(901	)	$	10,401		$	674
State		(498	)		2,742			1,290
Foreign		87			2,948			-
Total current expense		(1,312	)		16,091			1,964

Deferred
Federal		(7,665	)		(9,378	)		(5,451	)
State		(6,226	)		(2,050	)		(1,770	)
Foreign		-			-			(164	)
Total deferred expense		(13,891	)		(11,428	)		(7,385	)
Total income tax (benefit) expense	$	(15,203	)	$	4,663		$	(5,421	)

An income tax expense reconciliation between the U.S. statutory tax rate and the effective tax rate is as follows:

	Year Ended December 31,
(Thousands)	2020			2019			2018
Income from continuing operations, before tax	$	(734,015	)	$	15,571		$	11,124
Income tax at U.S. statutory federal rate		(154,143	)		3,270			2,336
Increases (decreases) resulting from:
State taxes, net of federal benefit		(3,452	)		407			(655	)
Benefit of REIT status		129,742			(2,188	)		(5,687	)
Goodwill impairment		14,910			-			-
Return to accrual		(2,795	)		104			(26	)
Permanent differences		448			122			41
Foreign taxes		87			2,948			(111	)
Rate differential		-			-			(1,319	)
Income tax (benefit) expense	$	(15,203	)	$	4,663		$	(5,421	)

The effective tax rate on income from continuing operations differs from tax at the statutory rate primarily due to our status as a REIT.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

The components of the Company's deferred tax assets and liabilities are as follows:

(Thousands)	December 31, 2020			December 31, 2019
Deferred tax assets:
Deferred revenue	$	34,207		$	25,507
Accrued bonuses		3			4
Stock-based compensation		801			1,123
Accrued expenses and other		270			75
Asset retirement obligation		1,429			1,068
Inventory reserve		241			322
Excess business interest expense		17			2,111
Lease asset liability		16,842			19,264
Settlement obligation		883			-
Other		3,032			1,387
Net operating loss carryforwards		126,464			116,736
Deferred tax assets		184,189			167,597
Valuation allowance		-			-
Deferred tax assets, net of valuation allowance		184,189			167,597

Deferred tax liabilities:
Property, plant and equipment	$	(103,441	)	$	(106,716	)
Customer list intangible		(42,898	)		(46,164	)
Other intangible amortization		(24,852	)		(15,486	)
Right of use asset		(18,443	)		(18,012	)
Deferred or prepaid costs		(3,041	)		(2,121	)
Debt discount and interest expense		(2,034	)		(2,890	)
Other		(20	)		(639	)
Deferred tax liabilities	$	(194,729	)	$	(192,028	)

Deferred tax liability, net	$	(10,540	)	$	(24,431	)

As of December 31, 2020, the Company’s deferred tax assets were primarily the result of U.S. federal and state NOL carryforwards.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. Given the Company has significant deferred tax liabilities, management determined that sufficient positive evidence exists as of December 31, 2020, to conclude that it is more likely than not that all of its deferred tax assets are realizable, and therefore, no valuation allowance has been recorded.

On August 31, 2016, we acquired 100% of the outstanding equity of Tower Cloud, Inc., which had federal NOL carryforwards of approximately $81.2 million at the date of the acquisition. As a result of the change in ownership, the utilization of Tower Cloud, Inc. NOL carryforwards is subject to limitations imposed by the Code. Approximately $18.3 million of the Tower Cloud, Inc. NOL carryforward was utilized in 2017. The remaining Tower Cloud, Inc. NOL carryforwards will expire between 2026 and 2036.

We have total federal NOL carryforwards as of December 31, 2020 of approximately $165.2 million which will expire between 2026 and 2037, and approximately $321.0 million which will not expire but the utilization of which will be limited to 80% of taxable income annually under provisions enacted in the Tax Cut and Jobs Act.

With the exception of Tower Cloud, Inc. and Uniti Fiber Holdings Inc., our 2017 returns remain open to examination. As Tower Cloud, Inc. and Uniti Fiber Holdings Inc. have NOLs available to carry forward, the applicable tax years will generally remain open to examination several years after the applicable loss carryforwards have been utilized or expire.

The Company or its subsidiaries file tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and certain foreign jurisdictions. A reconciliation of the Company’s beginning and ending liability for unrecognized tax benefits is as follows:

(Thousands)	2020		2019
Balance at January 1	$	1,734	$	3,036
Additions related to acquisitions		-		-
Additions for tax positions for the current year		-		1,734
Additions for tax positions of prior years		-		-
Reductions for tax positions of prior years		-		(3,036	)
Settlements		-		-
Balance at December 31	$	1,734	$	1,734

The Company’s entire liability for unrecognized tax benefit would affect the annual effective tax rate if recognized.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as additional tax expense. The Company recorded $0.1 million of interest expense and penalties for the period ending December 31, 2020. The Company’s balance of accrued interest and penalties related to unrecognized tax benefits as of December 31, 2020 was $1.3 million.